Q1/26 May Be Weak, but the Global Pipeline Becomes the Valuation Focus for Zai Lab

Overview

This report is UBS's preview update on Zai Lab's Q1/26 results. The report believes the first quarter will be a weak quarter, affected by Chinese New Year seasonality, the implementation of VYVGART's NRDL-negotiated price, ZEJULA facing competition from generic LYNPARZA, and channel inventory adjustments. Although short-term expectations for the China base business have been revised down, UBS believes investors' focus has clearly shifted to the global pipeline, especially the DLL3 program, and accordingly raises the target price for 9688.HK to HK$27.0 while maintaining a Buy rating.

Core views

The core view is that short-term earnings pressure does not change the medium-term investment thesis. The China base business is expected to grow steadily in 2026 with limited major upside surprises, but it can provide some downside protection; from 2027 onward, launches of new products such as KARXT, TIVDEK, and new indications for VYVGART are expected to drive more noticeable acceleration. The global pipeline, especially the DLL3 program, has become the main source of upside because its SCLC brain metastases data are positive and differentiated, and it plans to expand into registrational studies in first-line SCLC and neuroendocrine cancer.

Analysis framework

Through management communication, Q1/26 product-level revenue forecasts, comparison with Visible Alpha consensus expectations, long-term sales and P&L forecasts, and the FX and ADR/common-share conversion relationship between ZLAB.US and 9688.HK, UBS reassesses the valuation of Zai Lab's H shares. The valuation also considers a 2027 sales multiple and a risk-adjusted peak sales multiple for Zoci.

Methodology notes

• Valuation methodsSales multiple and pipeline risk-adjusted valuation

  Uses the 2027 sales forecast and Zoci's risk-adjusted peak sales as the core valuation anchors, combined with the ZLAB.US target price, 7.8 exchange rate, and 10:1 ADR/common-share ratio to derive the H-share target price.

  UBS assigns a 2x multiple to the 2027 sales forecast of US$580 million, and a 2x multiple to Zoci's risk-adjusted peak sales of US$1 billion in first-line and second-line treatment, deriving an enterprise value of about US$3 billion; adding about US$600 million in net cash supports a 12-month target price of US$35 for ZLAB.US and HK$27 for 9688.HK.

• Earnings previewComparison of UBSe versus consensus expectations

  Breaks down Q1/26 sales, expenses, and earnings by product and compares them with consensus expectations.

  The report mainly cuts its first-quarter forecasts for VYVGART and ZEJULA, explaining that the short-term weakness mainly comes from pricing, seasonality, and competition rather than deterioration in the long-term pipeline thesis.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• 9688.HK

  Primary subject of the research, Zai Lab H shares

  Strengths

  Buy rating maintained, target price raised to HK$27; the China business provides downside protection, while the global pipeline offers upside potential.

  Weaknesses

  Q1/26 is expected to be weak, with VYVGART price cuts, ZEJULA competition, and Chinese New Year seasonality creating short-term revenue pressure.

  Comparison

  The target price implies about 39.7% upside from the current price of HK$19.33; UBS's Q1/26 total product revenue forecast is below consensus expectations.

  Risks

  Clinical data below expectations, development delays, safety issues, slower commercialization ramp-up, intensifying competition, and unfavorable pricing and access.

• ZLAB.US

  Valuation reference target; ADR target price used to derive the H-share target price

  Strengths

  UBS's 12-month target price is US$35, and it serves as the basis for H-share valuation conversion.

  Weaknesses

  Also exposed to commercialization pressure in China and execution risk in the global pipeline.

  Comparison

  The H-share target price is derived based on the ZLAB.US target price, the 7.8 exchange rate, and the 10:1 ADR/common-share ratio.

  Risks

  ADR and H-share valuation premium/discount, exchange rates, liquidity, and changes in cross-market sentiment may affect the conversion result.

Key data

• RatingBuyUBS maintains its Buy rating.
• 12-month target priceHK$27.00The previous target price was HK$22.80.
• Current share priceHK$19.33As of 2026-04-21.
• Implied upsideapproximately 39.7%Estimated based on the HK$27.00 target price and the current price of HK$19.33.
• Q1/26 total product revenue forecastUS$104 millionBelow the consensus estimate of US$115.7 million, a difference of about US$11.7 million.
• Q1/26 ZEJULA forecastUS$35 millionBelow the consensus estimate of US$44.6 million, mainly affected by generic LYNPARZA and channel dynamics.
• Q1/26 VYVGART forecastUS$18 millionBelow the consensus estimate of US$22.4 million, affected by the implementation of the negotiated price and an initial price cut of about 12%.
• 2027 sales forecastUS$580 millionUsed in UBS's 2x sales multiple valuation.
• Zoci risk-adjusted peak salesUS$1 billionUsed in UBS's 2x multiple assumption valuation.
• Market capitalizationHK$21.6b / US$2.76bDisclosed in the report's trading data.

Impact & implications

In terms of investment implications, weak Q1/26 performance may weigh on short-term earnings expectations, but UBS believes the market assigns limited value to the China base business and also does not fully reflect the value of the global pipeline, especially the DLL3 program. Therefore, short-term weakness in the China business may coexist with long-term pipeline re-rating, and the stock's drivers may shift from quarterly revenue to frontline DLL3 data, progress in registrational studies, and key readouts in 2027.

Risks

• VYVGART faces ongoing competitive pressure in China, and the implementation of the negotiated price and price cuts may drag on short-term sales.
• ZEJULA is affected by generic LYNPARZA and channel inventory digestion, and Q1 sales may face a material hit.
• If DLL3 and other global pipeline assets show insufficient clinical efficacy, safety, or differentiation, the valuation re-rating thesis may weaken.
• Development delays, slower-than-expected progress in registrational studies, or postponed key readouts would affect market expectations for accelerated growth in 2027.
• Commercialization risks include slow ramp-up, rising competitive intensity, and unfavorable pricing and reimbursement access conditions.
• The high-volatility disclosure indicates that this security carries above-average risk, and the expected return band required for the rating is also higher.

What to watch

• Whether actual Q1/26 product revenue comes close to UBS's forecast of US$104 million, and whether the gap versus consensus expectations narrows.
• Whether post-price-cut patient treatment duration and patient assistance programs for VYVGART can gradually improve retention and revenue trends.
• The pace of ZEJULA sales recovery after generic LYNPARZA entry and hospital inventory adjustments.
• Incremental frontline data for DLL3 in H2, and progress toward entering registrational studies in first-line SCLC and neuroendocrine cancer within the year.
• The ongoing 2L+ SCLC pivotal study, which UBS expects to read out in 1H27 or mid-2027.
• The visibility of revenue acceleration in 2027 driven by new products such as KARXT, TIVDEK, and new indications for VYVGART.